As Members Hunker Down, Large Toy Loans Recede in Tough Times

It's hard to think about luxury right now when so many people are thinking about cutting back and living with the bare minimum.
But loans on lifestyle items such as boats, RVs and motorcycles have not been put on the back burner for credit unions as the demand for such loans has been dwindling.
At The Golden 1 Credit Union in Sacramento, Calif., President/CEO Teresa Halleck said that RV loans were pretty popular and growing in a demand with baby boomers before the economy started to slide.
Many boomers, she said seemed to be opting for the RV lifestyle, and there was talk about growth in the area of RV loans for a little while. When gas prices hit $5.00 a gallon though, Halleck said many started to abandon the RV lifestyle along with bigger gas guzzling cars.
"When gas prices went back down, though we saw people immediately went back to buying gas guzzling items. It ties right back to the lifestyle."
In California right now, Halleck said, that people are just not spending on discretionary purposes.
"People are pulling back and hunkering down. We don't see much in the way of motorcycles even, and they're fuel efficient. People are just not making those purchases." Halleck pointed out that in California they're a second vehicle because they're not practical for the rainy season that the area sees.
Gary Mitchell, director of consumer lending at Partners Federal Credit Union in Orlando, said that they are seeing lower loan volume in these areas too, which was expected.
Mitchell said that they do have members applying for boat, RV and motorcycle loans, but Partners has seen an approximate 25% drop in loans in these areas over previous years.
During 2005, 2006 and 2007 The Golden 1 was averaging $1.6 million each month in total for boat, RV and motorcycle loans. Currently, the credit union is averaging $600,000 per month, a 64% decline in volume for these types of leisure loans.
With the uncertainty of how long it will take the market to come back Halleck said she isn't sure when or if the demand for those products will come back. From what she observed about consumers purchasing habits fluctuating with gas prices, Halleck said, though that as soon as consumers start feeling good again loans on these lifestyle products will pick right up. "I don't believe people have changed their lifestyle for the long term."
Mitchell agreed that when consumer confidence increases, credit unions will start to see more of these types of loans again.
In the past, The Golden 1 would visit boat and RV shows, but right now Halleck said they are less likely to participate in these types of events because the demand just isn't there. However, Halleck believes that there will be a time where demand for these loans will return.
"The Golden 1 management believes the current economic conditions are creating pent-up consumer demand that will eventually burst forward as the economic storm clouds begin to clear and members sense a rainbow of economic opportunity beginning to reemerge."
For this year though, Halleck said it is likely that the volume for leisure product loans will remain low as members opt to take day trips on already owned or rented RVs and boats.
Marketing these types of loans wasn't the credit union's approach to begin with, Halleck said, and with the low demand for them now they're sticking with that approach.
At Partners, Mitchell said the credit union's approach is to do what he called relationship marketing and not to push a product or specific item.
"We want to produce the message that if you need to borrow in any way, shape or form that you should go to your credit union."
Through the credit union's indirect lending program, Mitchell said that they do have relationships with boat and RV dealerships so that when the member comes to them for a loan they can go out and use the loan to purchase these types of items.
Delinquency rates in general have been increasing with the high unemployment rate, but Halleck said that they have not seen a tremendous increase in delinquencies for loans on boats, RVs and motorcycles. Loan areas that she said are producing increased delinquencies for the credit union are home equity loans, mortgages and more recently credit cards.
Mitchell said that Partners has not been seeing a high delinquency rate for these types of loans either. Part of the reason behind this, he said, is that they have a selective approval process for luxury items. The credit union usually requires large down payments and structures the loans so that if members have a life experience, such as a job loss, they would not be in over their heads.
One popular area right now that Partners is tapping into is green strategy loans. Disney, Mitchell said, has launched a green strategy campaign that Partners is working to align itself with. The credit union offers a reduced interest rate of 25 basis points on any hybrid vehicle.
In Berkeley, Calif., Cooperative Center Federal Credit Union has started offering financing on electric cars. The credit union has agreed to finance 100% of the purchase price of a ZENN electric car from Berkeley's Green Motors. The loan has a fixed interest rate as low as 5%. The ZENN electric car costs around $19,000 at Green Motors.
--lsiegriest@cutimes.com